B. of A. drops most in 3 months, financials lag

Quarterly results serve as catalyst for handful of financial movers

By

GregMorcroft

ReginaHing

NEW YORK (MarketWatch) — Bank of America Corp. marked its stock’s biggest decline in a single day in three months on Wednesday, as investors assessed a dwindling loan portfolio and a profit margin amplified by smaller loan-loss reserves. Shares slumped 4.9% to close at $7.53.

Reporting second-quarter financial results before the open, Bank of America
BAC, -1.38%
swung to a profit of $2.46 billion, benefiting from a tough year-ago period when it took a hit from soured mortgages. It spent most of last year trying to clear overhangs related to its 2008 acquisition of mortgage lender Countrywide Financial Corp. Read about CEO Brian Moynihan’s message to investors.

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The Charlotte-based bank’s profit was helped by reduced provisions for loan losses as credit quality in the U.S. continued to improve. Credit-loss provisions totaled $1.77 billion, down from $3.26 billion in the year-ago second quarter and $2.42 billion in the first quarter of 2012.

Meanwhile, total loans for the June quarter declined by about $10 billion over the previous quarter to $892.3 billion.

“While better-than-expected financial performance is a positive, many investors are still likely to struggle with a sub-6% return on tangible equity,” Sandler O’Neill analysts wrote in its research.

“The beat was generally low-quality in our view ... results were OK under bad conditions, but we don’t see the backdrop improving anytime soon and mid-single digit ROEs should continue,” analysts at JMP Securities said, as reported by the Wall Street Journal.

Among the other Dow financial components, American Express Co.
AXP, -0.08%
eased 0.7%. Shortly after the close Wednesday, the card issuer reported profit of $1.34 billion, or $1.15 a share, up from $1.3 billion, or $1.10 a share, in the same period last year. Analysts polled by FactSet had projected earnings of $1.10 a share.

Within the S&P 500 Index, shares of Bank of New York Mellon Corp.
BK, -1.21%
fell 0.4%. The company earlier reported a second-quarter loss after charges but said assets under management rose 2%.

Northern Trust posted a profit of $179.6 million, up from $152 million a year before. Meanwhile, PNC said earnings for the quarter fell 40% because it set aside a large provision for buying back mortgage loans. Northern Trust shed 1.8% while PNC’s shares trimmed 0.9%.

Also on the downswing was BlackRock Inc.
BLK, -0.72%
which earlier said that profit dropped 11% in the second quarter. The investment bank’s earnings got hit by a combination of falling advisory revenue and investment losses.

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